1. The petitioners in these four petitions pray under the provisions of Article 226 of the Constitution for the issue of a writ or prohibition against the respondents from proceeding with the enquiry pursuant to the notice under Section 34, Mysore Income-tax Act or in the alternative for a writ of certiorari for quashing the said notice.
2. The impugned proceedings were initiated by the Income-tax officer, Urban Circle and by the Special Income-tax Officer, Bangalore, on 15-3-1951, 29-3-1952, 2-12-1953 and 24-2-1954 respectively for the purpose of assessing under Section 34, Mysore Income-tax Act, the escaped income of the petitioners. The petitioners contend that the Income-tax Officer had no jurisdiction or authority to start such proceedings. The argument in support of this contention is two-fold:
(1) that Section 34 of the Mysore Income-tax Act stood, repealed on and from April 1, 1950 and that therefore the notice issued under that section by the Income-tax Officer after its repeal was without authority, and
(2) that even otherwise, the agreement made between the President of India and the Rajpramukh of Mysore on February 2, 1950 under Article 278 Of the Constitution of India forbade the initiation of such proceedings.
It would be necessary to state certain admittedfacts to understand and appreciate the contentions put forward on either side. A Committeeknown as the Indian States Finances EnquiryCommittee was appointed by the Union Government to examine and report among other matters-
Matters affecting most 'federal' subjects including taxes on income.
(5) Apart from the 'constitutional' requirements in connection with the integration of federal finances in State--Vide paragraphs 37 and 40 of Part I of our Report--certain important issues of a legal nature will arise in connection with the actual taking over of 'federal' subjects in the States by the Centre. This is a difficult subject upon which we are not qualified to offer competent advice. We have endeavoured, however, to indicate below the main features of what we conceive will be required in order to establish 'continuity of proceedings' in regard to all 'federal' subjects-- whether relating to revenues, expenditure or Service Departments--at the point of their transition from the States to the Centre.......
(a) Almost every 'federal' subject is dealt with in the States as in the rest of India, under powers conferred by appropriate legislation consisting of relevant Codes, Acts, Ordinances and Statutory Rules and Regulations. Subject to the limitations indicated below,--which are designed to secure legal 'continuity' of pending proceedings and 'finality and validity' of completed proceedings under the pre-existing State legislation--we think the whole body of State
(a) on the desirability of integrating Federal Finance in Indian States and Union of States with that of the rest of India for the purpose of establishing a uniform system of Federal Finance throughout what then was the Dominion of India; and
(b) as regard the legislative ground work and the administrative organisation necessary for the imposition, assessment and collection of Federal Taxes.
The said Committee made its report to the Government of India on 22-7-1949 in which it recommended among other matters that when the Federal Financial Integration came into effect, the items of Central Revenues specified on page 13 of Part I of the Report should be taken over from the States by the Central Government--Item 2 in that list being income-tax. On the date; of this report, income-tax in Mysore was being levied and collected under the then existing State law, viz., the Mysore Income-tax Act, 1923.
3. The President of India after the commencement of the Constitution, that is to say, on 28-2-1950 entered into an agreement with the Rajpramukh of Mysore under Arts. 278, 291, 295 and 306 of the Constitution of India, by which, subject to certain modifications, they accepted the recommendations of the Indian States Finances Enquiry Committee (which will hereafter be referred to as the Committee) contained in Part I of its Report read with Chapters I, II and III of Part II of its Report in so far as they applied to Mysore, together with the recommendations contained in Chapter IV of Part II thereof. In the annexure to Part I of their Report, the-Committee made the following recommendation:
'III. Technical matters relating to income-tax.
9. Our suggestions concerning certain legal and other matters of general importance, affecting most federal subjects (including taxes on income) which will arise in connection with federal financial integration in all States, have been set out in Paragraph 11 of Chapter II in Part II of our Eeport. Those relating to legal matters are, however, reproduced below for convenient reference :
legislation relating to 'federal' subjects should-be repealed and the corresponding body, of Central legislation extended 'proprio vigore' to the States, with effect from the prescribed date or as and when the administration of particular 'federal' subjects is assumed by the Centre. (b) For the above purpose, as well as for future 'federal' administration in States, it may be necessary specifically to extend not merely the legislative, but also the executive and administrative competence of the Centre, its officers and 'authorities', and the judicial authority of its Courts, to the territories of the States.
(c) Such State Courts (except Courts of 'final' appeal from orders of the State High Courts) as may in fact correspond to particular grades and classes of 'British Indian' Courts (Civil and Criminal) may have to be statutorily 'recognised' as 'corresponding judicial authorities' for purpose of dealing with cases, arising in the States under the 'federal' law of the Union of India; and the Supreme Court in India will have to be made the Court of final appeal from decisions of the State HighCourts to the same extent as in the case of Provincial High Courts.
(d) Those sections of the various Indian Acts and Ordinances which set out their territorial 'extent of application' will require amending so as to include State territories with effect from the prescribed date.
(e) It will be necessary to provide that all matters and proceedings pending under, or arising out of, the pre-existing State Acts shall be disposed of under 'those' Acts, by so far as may be, the 'corresponding authorities', (nominated by the Chief Executive Authority) under the corresponding Indian Acts.'
The recommendations contained in this Part of the Report are also reiterated in other Parts of it to which it is unnecessary to refer.
4. The Parliament thereafter enacted the Indian Finance Act 1950, to which the President accorded his assent on 31-3-1950. The financial integration of the State of Mysore with the Union of India came into effect on and from 1-4-1950. By Section 3 of this Act, the Indian Income-tax Act was extended to the whole of India except the State of Jammu and Kashmir and by Section 13, the income-tax laws in force in Part B States before 1-4-3950, were repealed except for a limited purpose. Section 13 runs:
'13(1) If immediately before the 1st day ofApril 1950 there is in force in any Part B Stateother than Jammu and Kashmir or in Manipur,Tripura or Vindhya Fradesh or in the mergedterritory of Coach-Behar any law relating to income-tax or super-tax or tax on profits of business, that law shall cease to have effect exceptfor the purposes of the levy, assessment andcollection of income-tax and' super-tax in respect of any period not included in the previousyear for the purposes of assessment under theIndian Income-tax Act, 1922 (XI of 1922) forthe year ending on the 31st day of March 1951,or for any subsequent year, or, as the case maybe, the levy, assessment and collection of thetax on profits of business for any chargeableaccounting period ending on or before the 31stday of March 1949: * * *'
The position therefore was that after 1-4-1950, theprovisions of the Mysore Income-tax Act couldnot be used by the income-tax authorities forany purpose other than the levy, 'assessment' andcollection of income-tax and super-tax, in respectof the pre-integration period.
5. The respondents contend that the purposeof the proceedings started against the petitionunder Section 34, Mysore Act, was to make an assessment of the petitioner's escaped income withinthe meaning of the word 'assessment' occurringin Section 13, Finance Act and the proceedings are,therefore, competent. The petitioner contendsthat the assessment provided for by Section 13, FinanceAct, refers only to an assessment to be madeunder Section 23, Mysore Act, and not to proceedingsunder Section 34. It is urged that under Section 34, theIncome-tax Officer does not make an assessmentbut re-opens an assessment already made andcompleted. If this contention, is correct, the proceedings initiated by the Income-tax Officer under Mysore Act would be without jurisdiction or authority for, Section 13, Finance Act, does not save , the Mysore Act for that purpose.
6. The soundness of the contention urged on either side depends, therefore, on the meaning of the word 'assessment' occurring in Section 13 of the Finance Act. According to the petitioners, assessment proceedings under the Mysore Act commence under Section 23 and become complete when the Income-tax Officer serves on the assessee a notice of demand under Section 29 of the Act. To appreciate this contention it would be necessary to refer here to Sections 23, 27, 30, 31 and 34 of the Mysore Act. These sections run:
'23(1) If the Income-tax Officer is satisfied that a return made under Section 22 is correct and complete, he shall assess the total income of the assessee and shall determine the sum payable by him on the basis of such return.
(2) If the Income-tax Officer has reason to believe that a return made under Section 22 is in-correct or incomplete, he shall serve on the person who made the return a notice requiring him on a date to be therein specified either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which such person may rely in support of the return.
(3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as may be, the Income-tax Officer, after hearing such evidence as such person may produce and such other evidence as the Income-tax Officer may require, on specified points, shall by an order in writing, assess the total income of the assessee, and determine the sum payable by him On the basis of such assessment.
(4) If the principal officer of any company or any other person fails to make a return under Sub-section (1), or Sub-section (2) of Section 22, as the case may be, or falls to comply with all the terms of a notice issued under Sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice Issued under Sub-section (2) of this section, the Income-tax Officer shall make the assessment to the best of his judgment.
27. Where an assessee or, in the case of a company, the principal officer thereof, within one month from the service of a notice of demand issued as hereinafter provided, satisfies the Income-tax Officer that he was prevented by sufficient cause from making the return required by Section 22, or that he did not receive the notice issued under Sub-section (4) of Section 22, or Sub-section (2) of Section 23, or that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of the last mentioned notices, the Income-tax Officer shall cancel the assessment and proceed to make a fresh assessment in accordance withthe provisions of Section 23.
30.(1) Any assessee objecting to the amountOr rate at which he is assessed under Section 23 or Section 27, or denying his liability to be assessed under this Act, or objecting to a refusal of an Income-tax Officer to make a fresh assessment under Section 27, or to any order against him under Sub-section (2) of Section 25 or Section 28, made by an Income-tax Officer, may appeal to the Deputy Commissioner against the assessment or against such refusal or order:
Provided that no appeal shall lie In respect of an assessment made under Sub-section (4) of Section 23 or under that sub-section read with Section 27. (2) The appeal shall ordinarily be presented within thirty days of receipt of the notice of demand relating to the assessment or penalty objected to, or of the date of the refusal to make a fresh assessment under Section 27, as the case may be; but the Deputy Commissioner may admit- an appeal after the expiration of the period if he is satisfied that the appellant had sufficient cause for not presenting it within that period.
(3) The appeal shall be in the prescribed form,and shall be verified in the prescribed manner.31.(1) The Deputy Commissioner shall fix aday and place for the hearing of the appeal,and may from time to time adjourn the hearing.
(2) The Deputy Commissioner may before disposing of any appeal, make such further inquiry as he thinks fit, or cause further inquiry to be made by the Income-tax Officer.
(3) In disposing of an appeal, the Deputy Commissioner may, in the case of an order of assessment,--
(a) confirm, reduce, enhance, or annul the assessment; or
(b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit or the the Deputy Commissioner may direct and the Income-tax Officer shall thereupon proceed to make such fresh assessment; or in the cases of an order under Sub-section (2) of Section 25 or Section 28,
(c) confirm, cancel or vary such order: Provided that the Deputy Commissioner shall not enhance an assessment unless the appellant has had a reasonable opportunity of showing cause against such enhancement.
34. If for any reason, income, profits or gains chargeable to income-tax has escaped assessment in any year, 'or has been assessed at too low a rate, the Income-tax Officer may, at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or in the case of a company, on the principal Officer thereof a notice containing all or any of the requirements which may be included in a notice under Sub-Section (2) of Section 22, and may proceed to assess, or re-assess such income, profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section: Provided that the tax shall be charged at the rate at which it would have been charged, had the income, profits or gains, not escaped assessment, or full assessment, as the case may be.'
7. The petitioner contends that it is Section 23, Mysore Act that confers the power on the Income-tax Officer to make an assessment and that the words 'cancel the assessment' occurring in Section 27, and 'set aside the assessment' occurring in Section 31 or the Act, support the view that the issue of ademand notice under Section 20 of the Act completesthe assessment and that the proceedings there-after do not form part of it. The respondents urge that all proceedings initiated by the Income-tax Officer for the determination of the taxable income and the tax payable thereon, whether under Section 23 or Section 34 of the Act have to be regarded as assessment proceedings, and support for this view is sought to be derived from the words 'assess or re-assess' used in Section 34 of the Act.
8. It is significant that the word 're-assessment' is not found in Section 13, Finance Act. It is true that Section 34, Mysore Act, provides for the taxation of income which has either escaped assessment or has been assessed at too low a rate. The argument for the respondents is that when an Income-tax Officer deals with an escaped income under Section 34 of the Act, he assesses it and when he deals with an income which had been assessed at too low a rate he re-assesses, it. That is the explanation offered for the use of the words 'assess or re-assess' in Section 34 of the Act. If that can be a correct explanation, it would still have to be explained why Section 13, Finance Act which according to the respondents, saves Section 34, Mysore Act for the assessment of escaped income did not save it for the purpose of re-assessing income which had been assessed at too low a rate. The intendment of the Act could not be to save only a part of Section 34 of the repealed Mysore Act, and not the whole of it.
9. The decision of the Privy Council reportedin -- 'Commr. of Income-tax, Bombay v. Messrs.Khemchand Ramdas seemsto support the contention of the petitioner thatthe word 'assessment' used in Section 13, Finance Actrefers only to an assessment under Section 23, MysoreAct and not to proceedings under Section 34. In theirjudgment, their Lordships of the Privy Councilhave observed as follows:
' * * * * In order to answer them, it is essential to bear in mind the method prescribed by the Act for making an assessment to tax, using the word 'assessment' in its comprehensive' sense as including the whole procedure for imposing liability upon the tax-payer. The method consists of the following steps. In the first place, the taxable income of the tax-payer has to be computed. In the next place, the sum payable by him on the basis of such computation has to be determined. Finally, a notice of demand in the prescribed form specifying the sum so payable has to be served upon the tax-payer. The second of these steps involves the determination of two sums, namely the sum payable for income-tax and the sum payable for super-tax. The notice of demand in the prescribed form also provides for the sums payable for income-tax and super-tax being specified separately. Considerable discussion accordingly took place before the High Court on the question whether a demand for super-tax in order to be valid ought to be made simultaneously with the demand for income-tax. Aston A. J. C. considered that the demand for super-tax should be made within a reasonable time of the assessment for Income-tax, meaning no doubt, by assessment the service of the notice of demand for Income-tax which normally completes the assessment.
Rupchand Bilaram A. J. C. wag of opinion that the demand for super-tax should be made within a reasonable time, and therefore almost simultaneously with the demand for income-tax. Both of them held for this reason (amongst others) that the service of the notice of demand of 4th May 1929 was illegal and inoperative to impose liability upon the respondents. Their Lordships do not find it necessary to express any opinion upon this point inasmuch as in their view and for the reasons-which they will now proceed to give it does not call for determination in the present case.
It had been argued on behalf of the appellant that the Act nowhere imposes any limit of time within which an assessment under the provisions of Sections 23 and 29 is to be made, and that the service of the notice of demand can therefore be made at any time. This is true. It had,. in effect, been so determined by this Board in -- 'Rajendra Nath Mukerjee v. Commr. of Income-tax . But it is not true that after a final assessment under those sections has been made, the Income-tax Officer can go on making fresh computations and issuing fresh notices of demand to the end of all time. It is possible that the final assessment may not be made until some years after the close of the fiscal year. Questions of difficulty may arise and cause considerable delay. Proceedings may be taken by way of appeal and cause further delay. Until all such questions are determined and all such proceedings have come to an end there can be no final assessment. But when once a final assessment is arrived at, it cannot, in their Lordships opinion be reopened except in the circumstances detailed in Sections 34 and 35 of the Act (to which reference is made hereafter) and within the time limited by those sections.
In the present case, the liability of the respondents both for income-tax and for super-tax was determined by the Income-tax Officer on 17th Jan. 1927. In the order made by him on that date he assessed the respondents to income-tax at the maximum rate, out as the respondents were at that time a registered firm he held, as he was bound to hold, that no supertax was to be levied. On some date, before the end of March 1927, he served on the respondents a notice of demand for the tax that he had determined was properly leviable. The assessment having been made under Section 23(4) no appeal lav In respect of it. The assessments of the respondents was therefore final both in respect of income-tax and super-tax. Their liability in respect of both taxes had been finally determined, and none the less because the question of their liability to super-tax had been determined in their favour. It was, indeed, contended before their Lordships that the assessment could not be regarded as having been determined inasmuch as the Commissioner might at any time, and apparently after any lapse of time however long, cancel the registration of the respondents as a registered firm and so subject the' respondents to liability to pay super-tax. Their Lordships would, in any case, hesitate long before acceding to a contention that would lead to so extravagant results ....'
The view taken by the Privy Council was that an assessment became complete when the Income-tax Officer determined the amount due by the assessee and' issued a notice of demand under Section 29, The mere fact that the Commissioner of Income-lax could exercise his powers of revision under Section 33 of the Income-tax Act or that the Income-tax Officer at any time within one year from the date of any demand may make rectifications and correct mistakes in his assessment did not make the assessment under Section 23 of the Act any the less final or the proceedings under the 'Income-tax Act incomplete.
10. The Lahore High Court in a case reported in -- 'Nawal Kishore v. Commr. of Income-tax', AIR 1936 Lah 897 (C) took the view that an assessment is concluded when the amount of tax payable by the assessee has been determined and a demand notice issued to him. On p. 900 while referring to another Privy Council case reported in AIR 1934 PC SC they said as follows;
''It must however be remembered that this observation was made by their Lordships to repel the contention raised on-behalf of the appellant to the effect that assessment is a definite act and that if an assessment is not made on income within the tax year, then that income has 'escaped assessment' within that year and can be subsequently assessed only under Section 34 within its time limitation. In that case no order of assessment had ever been made against Burn & Co.; and their income had at one time been included in the income of Martin & Co. and thereafter excluded from such assessment. What was really decided in that case was that an assessment can be made under Section 23(1) of the Act, more than a year, in fact at any time, after the assessment year, if in the meantime no final assessment has been made does not justify an inference that an assessment is not concluded when the amount of tax payable by the assessee has been determined and a demand notice issued to him. The use of the words 'Cancel the assessment, make a fresh assessment', arid 'annul or enhance the assessment' in Sections 27, SO and 31 shows that the proceedings after the issue of the demand notice do not form part of the assessment ......'
11. The respondents rely on a decision of a Travancore-Cochin High Court reported in --'Lekshmana Shenoy v. Income-tax Officer', AIR 1954 TC 137 in support of their contention that the word 'assessment' in Section 13, Finance Act, includes proceedings under Section 34, Income-tax Act. The only discussion in me judgment on this question is contained in paragraph 10 of the judgment which runs:
'(10) Point (b) : Both the words 'assessed' and 're-assessed' occur in Section 44, Cochin Income-tax Act, 1117, and Section 47, Travancore-Cochin Income-tax Act, 1121, and the contention of the petitioner is that as 're-assessment' is not specified in Section 13, Finance Act, 1950, the power to 'reassess' has ceased to exist and is not available any longer. This also is a contention, which we are not prepared to accept. The words 'levy, assessment and collection' as we understand, them include all the processes by which the tax is ascertained, demanded and realised and 'reassessment', being one of those processes comes ' within the ambit of the phraseology employed,'
12. The Privy Council decision reported in AIR 1938 PC 175 (A) does not appear to have been cited before the learned Judges of the Travan-core-Cochin High Court and it appears to have been more or less assumed that a re-assessment; came within the ambit of the phraseology of the words employed in Section 13, Finance Act.
13. The respondents rely on another judgment of the Calcutta High Court reported in -- 'Jag-mohan Goenka v. K. D. Banerjee', : 26ITR637(Cal) (E). All that was decided by the Calcutta High Court in that case was that more than one re-assessment was permissible under Section 34, Indian Income-tax Act.
14. The petitioner is, therefore, justified, in my opinion, in contending that Section 13, Indian Finance Act which repeals the Mysore Income-tax Act does not save Section 34 of the Mysore Income-tax Act so as to entitle the Income-tax Officer to re-open, under that section pre-integration assessments.
15. The petitioner, as already stated, contends further that the proceedings initiated by the Income-tax Officer are incompetent for another reason. This contention is based on the recommendations of t?ie Indian States Finance Enquiry Committee read with the agreement entered into between the President of India and the Rajpramukh of Mysore on 28-2-1950. It is urged that the recommendations of the Committee referred to in the agreement and accepted by the parties thereto, preclude the re-opening of the pre-integration assessments made under the Mysore Law. In support of this argument reliance is placed on the recommendation of the Report of the Committee contained on pages 44 and 45 of Part I which has been extracted above.
16. The petitioner submits that it is clear from this part of the Report that the Committee while suggesting that the Mysore Income-tax Act should be repealed and the corresponding body of Central Legislation extended to the Mysore State, was definitely of the view that the State legislation should be saved only for securing the legal continuity of pending proceedings under the State legislation and that proceedings completed under the state law should be treated as final and valid. The argument on behalf of the petitioners is that Clauses (b) to (e) printed on p. 45 of the Report are, as stated in Clause (a) on that page, were designed to 'secure legal continuity of pending proceedings' and 'finality and validity of completed proceedings under the pre-existing State legislation.' It is therefore contended that pre-integration assessments which are proceedings completed under the Mysore Act, were agreed to be treated as 'final and valid' without being liable to be reopened under Section 34, Mysore Act.
It is further submitted that the agreement between the Rajpramukh and the President of India who accepted this recommendation of the Committee, was entered into under Article 278 of the Constitution and continues to be in force for a period of ten years unless terminated by the President after the expiration of five years, and that the legislative power of the Parliament conferred by Article 245 of the Constitution is, as provided by that Article, subject to the other provisions of theConstitution and therefore subject to Article 278 under which the agreement was made. The argument for the petitioner is that if, by enacting Section 13. Finance Act, the Parliament empowered the Income-tax Officer to re-open such completed assessments, they exceeded their legislative competence thereby rendering the provisions of Section 13, Finance Act unconstitutional and void. This argument of the learned counsel for the petitioners cannot be said to be devoid of merit; but I have already come to the conclusion that the absence of the word 're-assessment' in Section 13, Finance Act made it incompetent for the Income-tax Officer to issue the notices complained of, to the petitioners. The omission of the word 'reassessment' in the said section must be deemed to be intentional as it was necessary to implement the recommendations of the Committee and the Agreement between the President and the Raj-pramukh. In this view, it is unnecessary, for the disposal of these cases, to consider the arguments in support of the contention that Section 13, 'if it is deemed' to include the power to issue notices for re-assessment, will be 'ultra vires' of the Constitution.
17. In the result, the petitions are allowed with costs. The writs prayed for will be issued. Advocate's fee Rs. 250/- in each case.
18. The Petitioner in C. Ps. 52 and 53 of 1953 was assessed to income-tax for the years 1946-47 and 1947-48 respectively, while the petitioners in Writ Petitions 105 & 106/53 were, assessed for the year 1949-50 and the income-tax due as per assessment made was recovered. Notices have been issued to them for purposes of reassessment under Section 34, Mysore Income-tax Act within the period Of four years as prescribed in that Section, but subsequent to the enactment of the Indian Finance Act 1950 which came into force from the 1-4-1950. It is not disputed that but for the enactment of the Indian Finance Act 1S50, the Petitioners are liable to be proceeded against under Section 34 of the Mysore Income-tax Act. But it has been provided in Section 13(1), Indian Finance- Act, that the State enactments like the Mysore Income-tax Act should cease to have effect 'except for the purposes of the levy, assessment and collection of income-tax and super-tax' in respect of certain previous years. It is clear that in respect of the years for which income-tax has been recovered from the petitioners, assessment could have been levied and collected from the petitioners under Section 13(1) if assessment had not been previously levied and collected from them, as Section 13(1), Indian Finance Act provides that the Mysore Income-tax Act shall continue to have effect 'for purposes of the levy,assessment and collection of income-tax and super-tax' for the years under consideration.
What is contended on behalf of the petitioners is that the Mysore Income-tax Act ceased to have effect except for purposes of levy, assessment and collection of income-tax, and as the exception does not refer to 're-assessment', it must be held that the Mysore Income-tax ceased to have effect for purposes of 're-assessment' under the provisions of the Mysore Income-tax Act. On the other hand, it is contended for the respondents that the words 'levy, assessment and collection' are wide enough to include 're-assessment' under Section 34,Mysore Income-tax Act. The main point for consideration, therefore, is 'whether the right under the State Act in respect of 'levy, assessment and collection' of income-tax of previous years saved under Section 13(1), Indian Finance Act includes the right to re-assess under Section 34 of the Mysore Income-tax Act, the assessee from whom income-tax has already been collected;
19. It will be noticed that Section 13(1), Indian Finance Act was enacted in accordance with -the agreement entered into between the President of India and the Rajpramukh of Mysore. That agreement is again in accordance with the recommendations of the Indian States Finances Enquiry Committee. It will also be noticed that in Para 9 of the 'Annexure Memorandum concerning matters relating to taxes on income', it is stated that
'Subject to the limitations indicated below --which are designed to secure legal continuity of pending proceedings and finality and validity of completed proceedings under the pre-existing State -- legislation -- we think the whole body of State legislation relating to federal subjects should be repealed and the corresponding body of Central legislation extended'.
It is clear that the object of the Committee, and hence that of the agreement, was that pending proceedings should be continued under the old law, but that finality and validity in respect of completed proceedings should be secured. It is with this object that Section 13 (1), Indian Finance Act which refers to the repeal of the old Act except for certain purposes, was enacted. Hence Section 13(1), Indian Finance Act must be deemed to be in accordance with what was intended by the Indian States Finance Enquiry Committee. It must be noticed that Section 13(1), Indian Finance Act was framed with the intention 'to secure legal continuity of pending proceedings', aswell as to 'secure finality and validity of completed proceedings', under the pre-existing State legislation. This is made clear by Section 13(1)of the Indian Finance Act which states that the State legislation shall cease to have effect except for, levy, assessment and collection of income-tax and super-tax in respect of some previous years. There could hardly be any doubt that what is intended is that the old law would be applied for completing all pending proceedings. It may even be that there could be levy, assessment and collection of income-tax for the previous years if no proceedings had been started and income-tax remained uncollected. It is equally clear, however, that the old Act cannot be applied so as to disturb 'finality and validity of completed proceedings' under the pre-existing State legislation; and this means, if proceedings had been begun and completed, nothing could be done under the old Act such as re-assessment as finality had to be secured for completed proceedings under the pre-existing State legislation.
The point for consideration, therefore, is what is the difference between 'pending proceedings' and 'completed proceedings' and what is meant by saying that 'finality of completed proceedings should be secured.' The proceedings to recover income-tax under the State legislation are begun by issue of a notice under Section 22(2), Mysore Income-tax Act. An assessment is made, underSections 23 to 27 and the collection is made by issuinga notice under Section 29. The proceedings are complete if no appeal is filed, but otherwise they are completed by appeal, a second appeal and review under Sections 30 to 33. Though the proceedings are thus completed, the matter is not final as the completed proceedings may be re-opened under Section 34 or 35 of the Act. The object of framing Section 13(1), Indian Finance Act, as is clear by the Finance Committee's recommendation which was adopted for the agreement, on which Section 13(1) is based, is that once proceedings are completed under Sections 22 to 33, they cannot be re-opened under Section 34 or 35 but that where these proceedings are still pending and are incomplete, the provisions of the old Act are made applicable for levy, assessment and collection in such cases. The old Act is also made applicable for levy, assessment and collection in respect of income of previous years for starting and completing proceedings when previous proceedings had not been started and completed and the income had totally escaped assessment. In such a case, no question of re-assessment under Section 34 arises, it being a case of assessment under that Section on the ground that the entire income had escaped assessment.
20. The point as to there being two distinct proceedings is clarified in the commentary on the Indian Income-tax Act by A. C. Sampath Iyangar while dealing with the scope of Section 34 in para 981:
'An additional assessment comes in only when there is in respect of the assessee a valid assessment for the tax year 'ex hypothesi' insufficient. If hence the first assessment proceedings started duly by the issue of a notice under Section 22(2), should not have reached the stage of an assessment order, there is no scope for an additional assessment. What the Income-tax Officer need do in such a case would be simply to include the newly discovered item in the assessment to be made and for that purpose he may issue notices under Section 22(4) or 23(2), or Section 37 in order to gather materials in respect of the new item. The position would be the same if an assessment having been made in the first instance was subsequently set aside either by the Income-tax. Officer himself acting under Section 27, or by an appellate or revisional authority, or by the High Court. The consequence of such setting aside would be to enable the Income-tax Officer to continue his labours from the stage of a re-consideration of a return, if one had been made, or to again call for a return, if one had not been furnished, under the ordinary procedure of Section 23, and not under this section. If, on the other hand, no assessment proceedings had at all been started during the tax year by issue of notice under Section 22 (2), then the case would be one of escaped income.'
It will be noticed that two stages are contemplated one being a case of first assessment and the other a case of re-assessment. The proceedings which are started under Section 22(2) are pending till they reach the stage of assessment order and if materials required to proceed under Section 34, are discovered before an assessment order is finally made, that could be enquired into and order of assessment rectified in the proceedings previously instituted after going through theprocedure laid down in Sections 22 to 33. This is a case of first assessment. If the proceedings have been initiated under Section 22(2) and nave been completed, the matter could be re-opened under Section 34, or a mistake rectified under Section 35, as completed proceedings are not necessarily final but liable to reopening under Section 34 or Section 35. The re-opening is a case of reassessffient as there was previously a completed proceeding in which assessment had been recovered.
21. The above commentary makes it clear that if matter that entitles the income-tax authorities to re-assess under Section 34 comes to their knowledge before the original proceedings are completed, the assessment is rectified by including the assessment that is due on account of the new information. In such a case, no question of making a re-assessment under Section 34 arises as the original proceedings for recovery of assessment are not complete and as re-assessment can only be conceived after there has been a previous levy, assessment and collection, para 982 of the above commentary refers to the re-opening of the proceedings under Section 34. In other words, it is made clear that proceedings are initiated under Section 22(2) and they are completed by being continued up to the stage of Section 33. The completion of the proceedings does not make the assessment final or unalterable as the matter could be reopened for re-assessment under Section 34 or Section 35.
22. Section 34, Mysore Income-tax Act deals with two kinds of cases. One may be a case where the entire income of a person has escaped assessment in any year. As observed in the commentary of A. C. Sampath lyengar referred to above, the case would be one of escaped income. In such a case, notice under Sub-section (2), Section 22 will be issued as staled in Section 34, and the Income-tax Officer will proceed to assess the income, profits or gains that has escaped assessment. That would be a case of assessment under Section 34 as distinguished from a case of re-assessment under that section. If proceedings have already begun and completed but a portion of the income has escaped assessment or the entire income has been assessed at too low a rate, a notice would be issued under Section 22 (2) and the Income-tax Officer will proceed to re-assess such income. That would be a case of re-assessment under Section 34, That is why both the words 'assess' and 're-assess' are used in Section 34. When no assessment has at any time been made under Sections 22 to 33, it is a case for the Income-tax Officer to assess. If he has already passed an order of assessment in proceedings under Sections 22 to 33. the question of re-assessing arises either because a portion of the income has escaped assessment or the entire income has been assessed at a low rate.
In other words, the word 'assess' in Section 34 is used for assessment under Section 34 when an assesses has not been previously assessed, and the word 're-assess' is used when the assessee has been once assessed and has to be re-assessed either because a portion of his income has escaped assessment or because he has been assessed at too low a rate.
23. What is intended in the recommendations of the Finance Enquiry Committee and the agreement between the Rajpramukh and the President of India, is to secure finality in respect of completed proceedings while providing for the continuity of pending proceedings. In other words while pending proceedings are allowed to be proceeded with under the old 'Act, finality has been secured for completed proceedings by not permitting under Section 34 the re-opening of completed proceedings under Sections 22 to 33 and that is why'it will be noticed that the word 'reassessment' is not used in Section 13 of the Finance Act along with the words 'levy, assessment and collection.' This is supported' by the following statement' in para 19 of the Commentary on the Indian Income-tax Act by Sampath Iyengar:
'All completed assessments in the Part B States prior to the appointed day, are left undisturbed; the rest awaiting to be completed as on that date are taken over by the Union.'
It may be added that even without reference to the agreement on the basis of which Section 13, Indian Finance Act was enacted the same conclusion could be arrived at by considering Section 13, Finance Act. The Indian Income-tax Act as well as the Mysore Income-tax Act clearly refer to 'assessment,' and 're-assessment' and if it was intended that for purposes of recovering reassessment the Mysore Income-tax Act should subsist even after the Indian Income tax Act came into force, that fact would have been clearly stated in Section 13, Indian Finance Act, The. fact that Section 13 refers only to assessment find not to re-assessment makes it clear that what was intended is to secure finality of completed proceedings under the Mysore Income-tax Act and not permitting re-opening of completed proceedings for re-assessment under Section 34 of the Mysore Income-tax Act.
24. Sri B. M. Chandrasekhar who ably put forth the case on behalf of the respondents, contended that the words 'levy, assessment and collection' must generally be understood in a broad sense and that these words must be taken as including 're-assessment'. He relied for the purpose on some decisions which may here be referred to. In -- 'Abdul Khadar v. Commr. of Income-tax', AIR 1953 TC 526, it was observed:
'The rule enunciated in Section 13 is virtually the same as that contained in Section 6, General Clauses Act that normally the repeal of an enactment, shall not affect any liability incurred under the repealed enactment. With reference to the assessment proceedings of any year prior to the assessment for 1950-51 changeability arose tinder the old State Law though assessment and recovery had to be under the new Central Law. An assessment does not become final until all the proceedings provided in respect thereof are exhausted or the time limit prescribed for such proceedings expired.
The scope and amplitude of Section 13 of the Finance Act, 1950, is, if we may say so with respect, clearly explained in -- 'Madangopal Kabra v. Union of India', ' (G).'
It is not clear that their Lordships intended to-lay down that after 1-4-50 re-assessment under Section 34 could be levied and recovered in respect of incomes of the previous years under Part. B States Income-tax Acts the provisions of which havebeen to some extent saved by Section 13(1) of theFinance Act, 1950. It is, no doubt, true that if Section 13, Finance Act, had not been enacted, Section 6, General Clauses Act, would have made the old Act applicable for recovery of income-tax for which certain persons had become liable and it may be that under Section 6 of the General Clauses Act, it was open even after the new Act came into force, to make - re-assessment under Section 34 06 the old Act. Section 13, Finance Act, has however been enacted with reference to the point as to what extent the old Act is saved and it is that section that settles the question. In fact, the two sections are differently worded and their scope, it must be stated with respect, cannot be the same. Section 13 of the Finance Act, does not say that the old Act was saved for purposes of re-assessment and its levy and collection where as it is stated in it that the old Act is saved for levy, assessment and collection'. The fact that Section 13 was enacted with a particular object and that it was enacted in pursuance of an agreement referred to previously cannot be ignored.
Anyway, the above decision does not go to the length of holding that re-assessment that could have been recovered under the old Act could be levied or collected after Section 13, Finance Act, was enacted. Following is the portion relied on in the decision -- 'Bhailal Amin & Sons, Ltd. v. R..P. Dalai', : AIR1953Bom441 (H):
'The Indian Income-tax Act was only made applicable from, 1-4-1949, and therefore the petitioners' assessment could not be determined under that Act. Under Section 7 the Baroda Income-tax Law ceased to have effect except for the purposes mentioned in that section and those purposes were the purposes of the levy, assessment and collection of income-tax and supertax. Therefore, to the extent that any question arose with regard to the levy, assessment or collection of income-tax from the petitioners, the question had to be determined according to the Baroda Law. In this context, obviously, 'assessment' is used in its widest connotation. An assessment in this context is not merely the ascertainment of the amount due or payable by- the assessee, but it also means all the procedure that has to be followed for the purpose of arriving at the amount for which the assessee is liable, and when the matter was pending before the Huzur Adalat of the Baroda Court it was in the course of the assessment of the petitioners, and until the Huzur Adalat had given its final decision, the assessment of the petitioners would not be complete.'
From the above, it is seen that this decision refers to proceedings commenced under Section 22 and not completed, as they were pending decisions under some of the sections corresponding the Sections upto Section 33 of the Mysore Income-tax Act, or Section 43 of the Cochin Income-tax Act and this observation appears to apply also to AIR 1953 TC 526. Moreover, the Bombay decision makes it clear that proceedings begun under Section 22 would be complete only after the final decision in appeal or revision or review under Sections 30 to 33.
25. Next the following observation in AIR 1054 Cal 584 was relied on by Sri Chandra-sekhar:
'The word 'assessment' is not to be - taken in too narrow a sense, and does not mean merely the order of assessment but the whole process culminating in the order. .'
If' what is contended is that lays clown that 'assessment' means 're-assessment', it must be said that it is not so, as has been clearly shown in AIR 1936 Lah 897 by the following extract,:
'The learned Counsel for the Commissioner relied oil the following observation in the judgment of their Lordships of the Privy Council:
'That the word 'assessment' is not confined, in the statute to the definite act of making an order of assessment appears from Section 66 which refers to the course of any assessment'. It must, however, be remembered that this observation was made by their Lordships to repel the contention raised on behalf of the appellant to the effect that assessment is not made on income within the tax year, then that income has 'escaped assessment' within that year and can be subsequently assessed only under Section 34 within its lime limit. In that case, no order of assessment had ever been made against Burn & Co., and their income had at one time been included in the income of Martin & Co., and thereafter excluded from such assessment. What was really decided in that case was that an assessment can be made under Section 23(1) of the Act, more than a year, in fact, at any time, after the assessment year, if in the meantime no final assessment has been made. 61 Cal 285 (also reported in does not Justify an inference that an assessment is-not concluded when the amount of tax payable by the assessee .has been determined and a demand notice Issued to him. The use of the words 'cancel the assessment, make a fresh assessment' and 'annul' or enhance the assessment in Sections 27, 30 and 31 shows that the proceedings after the issue of the demand notice do not form part of the assessment.'
On the other hand, their Lordships in have made it clear what is meant by an assessment. Their Lordships have observed:
'One of the peculiarities of most Income-tax Acts is that the word 'assessment', is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer.'
These observations made in general terms as found in other decisions too, would appear to allow an argument that assessment includes reassessment and its collection. But that no such thing is intended is made clear later. Their. Lordships were proceeding with a case in which a firm had not sent a return in compliance with the notice issued by the Income-tax Officer. The Income-tax Officer proceeded to 'make the assessment to the best of his judgment as prescribed by Section 23(4)'. The firm was an unregistered firm and unregistered firms are liable to pay super-tax. But an application had been filed for registration and before making an assessment under Section 23(4), the firm was registered and the Assessing Officer made an assessment underSection 23(4) stating that 'The firm having applied for registration is registered, therefore no supertax is levied'. Later on, the registration of the firm was cancelled and the authorities proceed to levy super-tax which should have been levied previously but for the fact that the previous officer had passed an order registering the firm and had held that on that account no super-tax was due. In that connection, the point arose as to when it could be said that an assessment is finally made. Their Lordships observed as follows:
'It had been argued on behalf of the appellant that the Act nowhere imposes any limit of time, within which an assessment under the provisions of Sections 23 and 29 is to be made, and that the service of the notice of demand can therefore be made at any time. This is true. It had, in effect, been so determined by this Board in . But it is not true that after a final assessment under those sections has been made, the Income-tax Officer can go on making fresh computations and issuing fresh notices of demand to the end of all time. It is possible that the final assessment may not be made until some years after the close of the fiscal year. Questions of difficulty may arise and cause considerable delay. Proceedings may be taken by way of appeal and cause further delay. Until all such questions are determined and all such proceedings have come to an end there can be no final assessment. But when once a final assessment is arrived at, it cannot, in their Lordships opinion be re-opened except in the circumstances detailed in Sections 34 and 35 of the Act (to which reference is made hereafter) and within the time limited by those sections.'
It will be noticed that, as observed by their Lordships of the Privy Council, an assessment is finally made in proceedings under Section 23(4) when no return is sent. No question of appeal arises in cases of that kind as no appeal is provided for. An assessment may be finally made in proceedings under Sections 22 to 29 when a return is sent and these proceedings become complete when no appeals are filed. If appeals are filed on the matter is subjected to review or revision and those proceedings are terminated, the proceedings become then complete. But the proceedings are not final as they can be re-opened, under Section 34 or 35. This supports the conclusion that the proceedings of assessment are complete before the question of re-opening the matter arises under Section 34 or 35. The Privy Council decision makes it clear that two distinct proceedings are contemplated for recovery of income-tax, one being that of levy, assessment and collection under Sections 22 to 33, and the other being one of reopening the first assessment previously made and making a re-assessment under Section 34. This justifies the inference that when under Section 13(1), Finance Act, the applicability of the State Act for purposes of levy, assessment and collection of income-tax is saved, it does not mean that the applicability of that Act is also saved for purposes of re-assessment under Section 34.
26. It is, no doubt, true that a point exactly similar to the one before us arose before theTravancore-Cochin High Court, and it has been laid down in AIR 1954 TC 137 -:
'The words 'levy, assessment and collection' in Section 13, Finance Act, 1950, include all the processes by which the tax is ascertained, demanded and realised and 're-assessnient' being one of these processes comes within the ambit of the phraseology employed.'
No reasoning has been given for the opinion of their Lordships and it is not clear whether there is any agreement between the President of India and the Rajpramukh of the State of Travancore-Cochin and, if so, whether the object of enacting Section 13, Finance Act, was brought to the notice of their Lordships. We, 'with very great respect, therefore, cannot follow this decision, though we would ordinarily follow a decision of another High Court in such matters as this when it is desirable to lay down a common policy. When the wording of the section is not clearly in favour of a decision against the tax-payer and it is, to say the least, a case of doubt, the statute has to be interpreted in favour of the subject as we are dealing with a case of fiscal enactment. In -- 'C. P. & Berar Provincial Co-operative Bank Ltd., Nagpur v. Commr be Income-tax,' C P.', AIR 1946 Nag 216 , it was held:
'The Income-tax Act is a fiscal measure and as such many of its provisions are of necessity arbitrary. Where the provisions of a fiscal enactment are plain and unambiguous, Courts' duty is to interpret them according to their plain meaning regardless of the consequences; but if there is any ambiguity the provision should be construed in favour of the subject.'
27. Though the objects and reasons for the enactment of a statute may not be looked into when the wording of a statute is clear, it is not unusual to rely on the objects and reasons for its enactment when the meaning of the words of the section is open to more than one interpretation. Moreover, in this case, one cannot avoid taking note of the object as found in the agreement between the President and the Rajpramukh of Mysore as the agreement is one recognised by the Constitution. In fact, if any section in the Indian Finance Act is not in accordance with the agreement referred to above, it is open to the objection that it is constitutionally bad. Article 245 states that the power of the Parliament to make laws is subject to the provisions of the Constitution. Articles 265 and 278 are two such provisions. Article 265 states that no tax shall be levied or collected except by authority of law while Article 278 authorises the Government of India to enter into an agreement with the Government of a Part B State and provides for the-provision of the chapter in which Articles 265 and 278 are found to have effect subject to the terms of such agreement. Since such an agreement has been entered into and it is found that according to the terms of that agreement, the State legislation, such as the Mysore Income-tax Act, should only survive for fulfilling the object 'to secure legal continuity of pending proceedings and finality and validity of completed proceedings under the preceding State legislation', it cannot be said that taking into consideration this aspect of the matter is of no importance. Giving anxious consideration to the wording ofSection 13(1) of the Finance Act and the object, of the agreement, on the basis of which it is enacted, we do not feel any doubt that finality of completed proceedings which were not otherwise final but are subject to re-opening and re-assessment, was secured by Section 13(1) of the Finance Act, by not providing for re-opening and re-assessment under Section 34 of the Mysore Income-tax Act.
28. In the result, the notices issued by the Income-tax Department to re-open the proceedings are declared illegal, and as such, writs will issue quashing the proceedings of the Income-tax authorities as prayed for with costs. Advocate's fee Rs. 250/- in each case.
29. Applications allowed.